Moody's raises Romanian rating to investment grade on EU entry

Moody's Investors Service raised Romania's sovereign credit rating to investment grade for the first time, saying the country's accession in the European Union as of January 1 should speed up economic recovery. Moody's raised Romania's credit rating one step to Baa3, the lowest investment grade, from Ba1. Its decision to raise Romania to investment grade follows similar moves by Standard & Poor's on September 6, 2005 and by Fitch Ratings on November 17, 2004. „The upgrade was prompted by continuing improvements in Romania's economic institutions and a reduction in the government's debt burden,” Moody's said on Friday. „Accession to the EU in January 2007 should anchor these improvements and provide impetus for a continuation of reforms.” Romania and neighboring Bulgaria on September 26 received the go-ahead from the European Commission to join the EU on January 1, winning billions of euros in subsidies and expanding the world's largest trading bloc to 27 countries. The credit rating increase brings Romania in line with Moody's ratings on Bulgaria and Croatia. Moody's upgrade on Romania's €2.5 billion of foreign bonds today follows the latest move by S&P on September 5 to raise the country's sovereign credit rating to „positive” from „stable,” even before the EU invited Romania to join the bloc.

„The only question in my mind is why this took them so long,” Tim Ash, managing director at Bear Stearns International Ltd. in London wrote in an e-mail sent to Bloomberg. „This country has very favorable debt ratios, a modest budget deficit, has been growing at a healthy pace and proved its willingness to pay back its debts in 1999-2000.” Romania's Finance Ministry said today the budget deficit posted a surplus of 1.6% of gross domestic product after eight months of this year over a year-end original forecast for a deficit of 2.5% of GDP. S&P said September 5 that Romania's burden in 2005 was still low at 20% of GDP and it doesn't expect it to exceed 25% of GDP until the end of 2010. „Improvements in the conduct of monetary policy, particularly the introduction of an inflation-targeting framework, have increased macroeconomic stability,” analyst Kenneth Orchard and Senior Vice President Pierre Cailleteau wrote in Moody's statement on Friday. Annual inflation could fall below 6% this year from more than 40% five years ago, „even in the face of strong economic growth,” Moody's said. Moody's Orchard said Romania's government must bring fiscal policies in line with domestic demand, and said the fast pace of credit growth is also „a concern.” (Bloomberg)